Monday, 15 February 2010

The bad economics of big events

Governments, both local and central, are more than willing to throw large amounts of other peoples money at large events. Think rugby world cup, Americans cup, football games and even flower shows. But one of the biggest of all is the Olympic Games. Are they a good deal? In short no.

This paper from the Economics Department at Queens University, Ontario, Canada does A Cost-Benefit Analysis of an Olympic Games. The paper attempts, in the context of the 2010 Winter Olympics in Vancouver/Whistler, to rigorously address a representative cross-section of topics that should be found in a full blown Olympic Cost Benefit Analysis.

The bottomline:
As we see from Table 5 above, even the most generous measure of net benefit of the Olympics – Event Benefits minus Event Costs – is negative (-$101m), although by a lesser amount than was anticipated at the beginning of the project. This figure is “helped” by fully evaluating the extra surplus from the spectacle and the Halo.

However, there are a number of factors which push the actual net benefit of this much-celebrated project even further into the red. The first, of course, are the infrastructure costs discussed in section 1. While this paper did not rigorously assess these, a casual perusal of the Infrastructure Costs and the non-Olympic Infrastructure Benefits which might be expected reveals that the net contribution of Infrastructure to the Olympic “bottom line” will be negative by hundreds of millions of dollars. While these costs are obvious, the standard counter-argument is that they will be offset by the “economic impact” of the Games. However, section 4 of this paper revealed that “economic impact”, when correctly accounted for, is not nearly as large as is generally assumed. When combined with the substantial upside risks inherent in costs of public works projects, the expected overall net benefit of hosting an Olympic Games is substantially negative.

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